Overview of Real Estate Inspection Law in California

The
first law that home inspectors should be familiar with is in the Business
and Professions Code, sections 7195 et seq. This section of the law was
originally created by Senate Bill 258, in the 1996 legislative session, and
it has been in effect since January 1, 1997. This law defines home
inspections and home inspectors, as well as imposing certain duties and
constraints. A home inspection is defined as “a noninvasive, physical
examination, performed for a fee in connection with a transfer, as defined
in subdivision (e), of real property, of the mechanical, electrical, or
plumbing systems or the structural and essential components of a residential
dwelling of one to four units designed to identify material defects in those
systems, structures and components. A material defect is defined as “a
condition that significantly affects the value, desirability, habitability,
or safety of the dwelling. Style or aesthetics shall not be considered in
determining whether a system, structure, or component is defective.” These
definitions are also incorporated verbatim into CREIA’s Standards of
Practice, effective April 15, 1999.

Other sections of this law contain provisions similar to those in the
CREIA Code of Ethics, including prohibitions on repairing properties on
which an inspection was performed in the last 12 months, accepting
kickbacks, and on payment of referral fees to agents. The law also has a
4-year statute of limitations on the inspector’s liability, beginning with
the date of the inspection.

This law and others can be viewed on the web at
www.leginfo.ca.gov.
From the main menu of that website, click on “California Law.” On the next
menu, check the box for the Business and Professions Code, enter 7195, and
click on “Search.”

B&P 7195 was altered in 2001, and now includes language indicating that a
home inspector may provide energy information as part of the inspection. The
law that created those changes was Assembly Bill 1574. It also includes a
provision mentioning home inspectors in the Public Resources Code. Section
25401.7 of that code and states that inspectors shall provide contact
information on home energy for a nonprofit organization, a utility provider,
or a government agency such as the State Energy Resources Conservation and
Development commission.

Another
important section of relevant law is found in the Civil Codes. Section 1102
contains the information regarding required disclosure by sellers and
agents, and the language for the Real Estate Transfer Disclosure Statement.
Section 1102.4 contains a provision whereby an expert can relieve the seller
and agent of liability by providing “substitute disclosure” within the area
of their expertise. The named types of experts include licensed engineers,
land surveyors, geologists, structural pest control operators, contractors,
or “other expert.” The
California Coalition of Home Inspectors (CCHI) has long been at odds
with the California Association
of Realtors (CAR) over the wording of this section. One point of
contention in the discussions surrounding SB 1332 in the 2002 legislative
session was the proposed re-wording of this section to include Certified
Home Inspectors, and to make other clarifications regarding the expert’s
need to specify their intent that the report be used as substitute
disclosure.

In addition to these pieces of legislation, there is also another body of
law referred to as case law, wherein the interpretations of a court are
found to have the effect of law. Perhaps the most historically significant
example of such a law was the Easton decision in 1984, which spawned the
disclosure requirements we now have in California.

History of Home Inspector Legislation:

Though there is no formal state-sponsored licensing of inspectors in
California, there have been numerous pieces of legislation affecting
inspectors over the last 2 decades. One of the key steps in regulating any
business is a “Sunrise Study” which describes the business in question and
addresses the need for regulation. There have been 3 sunrise studies on the
home inspection business. The first study, widely discredited, was created
in 1986. The next study was created by the California Association of
Realtors in 1994. The third study was created by the California Coalition of
Home Inspectors as part of the process for SB 1216 in 1999.

There are numerous other laws pertaining to real estate, contracting,
small businesses, and building codes that all affect real estate inspection
businesses. The California Coalition of Home Inspectors (CCHI) monitors
legislation in all those areas, and reports to the CREIA membership through
the Inspector magazine and through the local chapter representatives. The
CCHI also maintains a highly effective lobbying presence in the Capitol.
CCHI and CREI-PAC (the political action committee for home inspectors) are
funded by your voluntary contributions.

§ 7195 California Business & Professions Code -- Home Inspectors

Section 1 of Stats.1996, c. 338 (S.B.258), provides:
“It is the intent of the Legislature in enacting this act to assure that
consumers of home inspection services can rely upon the competence of home
inspectors. It is the intent of the Legislature that, in ascertaining the
degree of care that would be exercised by a reasonably competent home
inspector pursuant to Section 7196 of the Business and Professions Code,
the court may consider the standards of practice and code of ethics of the
California Real Estate Inspection Association, the American Society of
Home Inspectors, or other nationally recognized professional home
inspection associations.”

§ 7195. For purposes of this chapter, the following definitions apply:

(a)
(1) “Home Inspection” is a noninvasive, physical examination,
performed for a fee in connection with a transfer, as defined in subdivision
(e), of the real property, of the mechanical, electrical, or plumbing
systems or the structural and essential components of a residential dwelling
of one to four units designed to identify material defects in those systems,
structures and components. “Home Inspection” includes any consultation
regarding the property that is represented to be a home inspection or any
confusingly similar term.

(2) “Home Inspection”, if requested by the client, may include a
inspection of energy efficiency. Energy efficiency items to be inspected may
include the following:

(G) The general integrity and potential leakage areas of walls, window
areas, doors, and duct systems.

(H) The solar control efficiency of existing windows.

(b) A “material defect” is a condition that significantly affects the
value, desirability, habitability, or safety of the dwelling. Style or
aesthetics shall not be considered in determining whether a system,
structure, or component is defective.

(c) A “home inspection report” is a written report prepared for a fee
and issued after a home inspection. The report clearly describes and
identifies the inspected systems, structures, or components of the dwelling,
any material defects identified, and any recommendations regarding the
conditions observed or recommendations for evaluation by appropriate
persons.

(d) A “home inspector” is any individual who performs a home
inspection.

(e) “Transfer” is a transfer by sale, exchange, installment land sale
contract, as defined in Section 2985 of the Civil Code, lease with an option
to purchase, any other option to purchase, or ground lease coupled with
improvements, of real property or residential stock cooperative, improved
with or consisting of not less than one nor more than four dwelling units.

§ 7196. Standard of care

It is the duty of a home inspector who is not licensed as a general
contractor, structural pest control operator, or architect, or registered as
a professional engineer to conduct a home inspection with the degree of care
that a reasonably prudent home inspector would exercise.

(a) Nothing in this chapter shall be construed to allow home inspectors
who are not registered engineers to perform any analysis of the systems,
components, or structural integrity of a dwelling that would constitute the
practice of civil, electrical, or mechanical engineering, or exempt a home
inspector from Chapter 3 (commencing with section 5500), Chapter 7
(commencing with Section 6700), Chapter 9 (commencing with section 7000), or
Chapter 14 (commencing with Section 8500) of Division 3.

(b) This chapter does not apply to a registered engineer, licensed land
surveyor, or licensed architect acting pursuant to this or her professional
registration or license, nor does it affect the obligations of a real estate
licensee or transferor under Article 1.5 (commencing with Section 1102) of
Chapter 2 of Title 4 of Part 3 of Division 2 of, or Article 2 (commencing
with Section 2079) of Chapter 3 of Title 6 of Part 4 of Division 3 of, the
Civil Code.

§ 7197. Unfair business practices

It is an unfair business practice for a home inspector, a company that
employs the inspector, or a company that is controlled by a company that
also has a financial interest in a company employing a home inspector, to do
any of the following:

(a) To perform or offer to perform, for an additional fee, any repairs
to a structure on which the inspector, or the inspector’s company, has
performed a home inspection report in the past 12 months.

(b) Inspect for a fee any property in which the inspector, or the
inspector’s company, has any financial interest or any interest in the
transfer of the property.

(c) To offer or deliver any compensation, inducement, or reward to the
owner of the inspected property, the broker, or agent, for the referral of
any business to the inspector or the inspection company.

(d) To offer or deliver any compensation, inducement, or reward to the
owner of the inspected property, the broker, or agent, for the referral of
any business to the inspector or the inspection company.

(e) A home protection company that is affiliated with or that retains
the home inspector does not violate this section if it performs repairs
pursuant to claims made under the home protection contract.

§ 7198. Waiver of duty of care; liability limitations; public policy

Contractual provisions that purport to waive the duty owed pursuant to
Section 7196 or to limit the liability of the home inspector to the cost of
the home inspection report, are contrary to public policy and invalid.

§ 7199. Commencement of legal actions; time

The time for commencement of a legal action for breach of duty arising
from a home inspection report shall not exceed four years from the date of
the inspection.